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.As the Treasury has suggested, Congressshould generally close these loopholes to keep industrial companies likeJohn Deere or Target from owning a bank, unless the exempt bank doesnot take insured deposits or it is broadly prohibited from extending anycredit to the industrial company as well as the company s affliates.14In contrast to the Fed, the SEC and CFTC have limited jurisdic-tion over holding companies of registered fi rms.For example, the SEChad jurisdiction over only 7 of the 200 affi liates of Lehman Brothers.15Therefore, Congress should broaden the jurisdiction of the SECand the CFTC to include the parent and all affi liates of anybroker-dealer or commodity futures merchant if that parent oraffi liate is not already supervised by a competent agency.Thislegislative change would ensure that transfers within the consolidatedgroup are not manipulated to hide problems, and that risky activitiesare not shifted to an unsupervised affiliate, without duplicating coverageof an already supervised affi liate.For example, the SEC would not havesupervisory authority over any part of a bank holding company otherthan its broker-dealer or mutual fund adviser already registered with theSEC.On the other hand, the SEC s supervisory powers would extendto an affi liate of a SEC-registered broker if that affi liate were not regu-lated by the Fed or other financial agency.Limited Mergers of Financial Agencies Are Needed In response tothe financial crisis, many commentators have called for streamliningthe current system of functional regulation.Some have suggestedmergers of regulatory agencies in a particular area; others have recom-mended one umbrella agency for all financial services.Although I sup-port a limited number of mergers of regulatory agencies, I strongly opposean umbrella financial regulator because it would be cumbersome andunnecessary.The United States has four prudential regulators of banks at the fed-eral level: the Comptroller of the Currency for national banks; the Officeof Thrift Supervision (OTS) for national S&Ls; the Federal Reserve forbank holding companies and the larger state-chartered banks that aremembers of the Federal Reserve System; and the FDIC for the smallerstate-chartered banks that are not members of the Federal Reserve System. 368 t oo bi g t o s a ve ?This multiplicity of federal regulators creates duplicative bureaucraciesand allows banks to choose the regulator that treats them best.On theother hand, many of these redundancies and inconsistencies have alreadybeen eliminated through a federal banking council, which adopts uniformrules for all four agencies on any topic of significance.16 Furthermore, as apractical matter, the time to complete any regulatory merger is long, andthe dislocation costs are substantial.It took over a decade to merge theinsurance funds for banks and thrifts, although that merger was a clearwinner.The strongest case for a merger is the one between the OTSand the Comptroller of the Currency; the merged agency wouldthen have regulatory authority over all nationally charteredbanks and thrifts.17 Although the powers of thrifts are still somewhatdifferent from the powers of national banks, they have become muchcloser during the last decade.In addition, since this merger involves twotypes of national charters, it would not be opposed by the states.The FDIC works with state regulators to supervise smaller bankschartered by the states.FDIC officials argue that they need to be involvedin bank regulation as part of their role as the insurer of bank deposits.This is a credible argument, though some would say that a bank insurershould have an arms-length relation with the banks.In any event, theelimination of the FDIC as a bank regulator in favor of the Comptrollerof the Currency would be politically opposed by most state regulatorsand small state-chartered banks.Similarly, Fed officials argue that theyneed to be involved in bank regulation as part of their role in settinginterest rates and overseeing the money supply.Again, this is a credibleargument.Though some would like to see the Fed as a pure monetaryauthority, it is the sole regulator of bank holding companies, whichinclude many of the large institutions considered to pose systemic risk tothe financial system.The case for merging the SEC and the CFTC is more com-pelling from a policy perspective.When the CFTC was created, thetrading of futures on boards of trades was concentrated in agriculturalproducts like soybeans.Now most trading volume on boards of tradeinvolves financial futures on stock indices, interest rates, and bonds.Inmany cases, the financial futures markets now set the prices for the cashmarket in stocks or bonds, that is, trading markets regulated by the SEC. The New Structure of U.S.Financial Regulation 369To increase regulatory coordination of related financial products, bothRepublican and Democratic former SEC chairs have supported themerger of the SEC with the CTFC.18 But the hitch has always beenthe Senate Agriculture Committee, which has jurisdiction over the CFTC,while the Senate Banking Committee has jurisdiction over the SEC.A possible solution might be joint oversight of a merged CFTC-SEC by both Senate Committees, perhaps through a select sub-committee with members from both Senate Committees.19Overlapping and Omnibus Agencies Are Not NeededThe Treasury has proposed to create a Consumer Financial ProtectionAgency (CFPA), originally suggested by Harvard Professor ElizabethWarren.Under the original version of this proposal, one agency wouldregulate all financial products offered to retail investors, includingmortgage loans, credit cards, bank deposits, and mutual funds.20 As men-tioned earlier, Congress should combine into one agency all federalregulators of various aspects of mortgage origination.But this organiza-tional coherence would then be lost by combining mortgage loans withso many different products.For instance, combining mutual funds andmortgage loans is like mixing apples and grapefruits.Mutual funds areregistered as securities offerings at the SEC and sold to investors acrossthe country.Mortgage loans are offered by real estate brokers or banks totheir local customers; at that stage, mortgages are not securities
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